FSI International Inc. Reports Operating Results (10-Q)

FSI International Inc. (FSII) filed Quarterly Report for the period ended 2009-02-28.

FSI International Inc. is a leading global supplier of processing equipment used at key production steps to manufacture microelectronics. The company develops manufactures markets and supports products used in the technology areas of microlithography surface conditioning and spin-on dielectrics. FSI International's customers include microelectronicsmanufacturers located throughout North America Europe Japan and the Asia-Pacific region. FSI International Inc. has a market cap of $11.8 million; its shares were traded at around $0.38 with and P/S ratio of 0.1. FSI International Inc. had an annual average earning growth of 20.2% over the past 5 years.

Highlight of Business Operations:

Sales revenue decreased to $8.6 million for the second quarter of fiscal 2009 as compared to $21.4 million for the second quarter of fiscal 2008. The decrease related primarily to a decrease in shipments from $23.7 million in the second quarter of fiscal 2008 to $12.7 million in the second quarter of fiscal 2009. Sales revenue decreased to $20.9 million for the first half of fiscal 2009 as compared to $43.9 million for the first half of fiscal 2008. The decrease related primarily to a decrease in shipments from $44.4 million in the first half of fiscal 2008 to $22.3 million in the first half of fiscal 2009. The decreases in shipments in the fiscal 2009 periods as compared to the fiscal 2008 periods related to industry and overall global economic conditions. The fiscal 2009 periods were also impacted by the revenue deferral of a machine demonstration completed in the second quarter of fiscal 2009. Although the demonstration tool had been accepted and paid for by the customer in the second quarter of fiscal 2009, the same customer ordered an expansion module shortly after the demonstration tool was ordered. The accounting guidance requires that the tool and the expansion be viewed as one arrangement and recorded as a single unit of accounting. Therefore, the revenue and costs related to this demonstration tool was included in deferred profit as of the end of the second quarter of fiscal 2009.

Selling, general and administrative expenses decreased to $6.1 million in the second quarter of fiscal 2009 as compared to $6.9 million for the second quarter of fiscal 2008. Selling, general and administrative expenses decreased to $11.7 million for the first half of fiscal 2009 as compared to $13.6 million for the same period in fiscal 2008. The decreases in the year-over-year selling, general and administrative expenses related primarily to cost reduction initiatives associated with reductions in headcount and salary reductions taken in the first half of fiscal 2009 and improved service technician utilization rates. The decreases were net of $1.2 million of severance expense recorded in the second quarter of fiscal 2009. For additional information related to these severance charges, see Note 8 of the Notes to Condensed Consolidated Financial Statements.

Research and development expenses were $4.6 million for the second quarter of fiscal 2009 as compared to $4.8 million for the same period in fiscal 2008. Research and development expenses were $9.0 million for the first six months of fiscal 2009 as compared to $9.1 million for the first half of fiscal 2008. The decreases related primarily to cost reduction initiatives associated with reductions in headcount and salary reductions taken in the first half of fiscal 2009. The decreases were net of $1.0 million of severance expense recorded in the second quarter of fiscal 2009. For additional information related to these severance charges, see Note 8 of the Notes to Condensed Consolidated Financial Statements. During the second quarter of fiscal 2009 we continued investing in the ORION® single wafer wet system while sustaining support for all other products.

The ARS we hold are marketable securities with long-term stated maturities for which the interest rates are reset through a Dutch auction every 28 days. The auctions have historically provided a liquid market for these securities as investors historically could readily sell their investments at auction. Due to the liquidity issues experienced in global credit and capital markets, the ARS held by us have experienced multiple failed auctions, beginning on February 19, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase orders. During fiscal 2008, $0.8 million of ARS were partially redeemed. An additional $2.3 million were redeemed in the first half of fiscal 2009. In the second quarter of fiscal 2009, we redeemed $1.3 million par value of ARS for $1.3 million and recorded a gain of $0.1 million.

Capital expenditures were $12,000 in the first half of fiscal 2009 and $0.9 million in the first half of fiscal 2008. We expect capital expenditures to be less than $150,000 in the third quarter of fiscal 2009.* Depreciation and amortization for the third quarter of fiscal 2009 is expected to be between approximately $0.9 and $1.0 million.*

If we continue to use cash at the current pace, we will not have sufficient cash to meet our obligations over the next 12 months.* Recognizing this and given the current macroenvironment, we have implemented a number of cost reduction steps, as discussed in Note 8 of the Notes to Condensed Consolidated Financial Statements. Our actions in fiscal 2009 are expected to lower our annual operating expenses by $11 to $12 million, which is expected to reduce the cash flow breakeven revenue level to approximately $12 to $14 million per quarter, depending on the gross margins and the timing of shipments and accounts receivable collections.* In addition, we plan to manage cash flows by reducing capital expenditures to less than $200,000 in fiscal 2009 and to aggressively improve our working capital levels in the second half of fiscal 2009.* For the third quarter of fiscal 2009, we anticipate using less than $1.0 million of net cash for operations.* Management believes that these actions will allow us to have sufficient cash to fund our operations for at least 12 months.*

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